Abstract

In 2006, the Malaysian government implemented a sustainable and
comprehensive microfinance institutional framework. Since then, many of the
jinancial institutions have laun ched microjinance products. The Islamic
finance as such can flourish in the Small Medium Enterprises (SMEs) and the
microfinance sector since financing in Islam involves the real economy. The
Islamic financing which is based on Shari'ah differs in its spirit and motivation
as compared to the conventional one. This paper, attempts to explore the
Islamic Guarantee Schemes services as provided by the Credit Guarant ee
Corporation (CGC). What are the factors that could lead the SMEs to go for
Islamic Guarantee Schemes and what are their perceptions and knowledge of
Islamic financing? The data set utilized in this study has been obtained via a
selfadministered questionnaire, based on samples of 125 CGC's clients. Results
of the survey postulated that many of the entrepreneurs were not aware of the existence of Islamic Guarantee Schemes, and their knowledge pertaining to
the Shari 'ah principles of Islamic microfinancing is rather shallow. The results
have important implications to the policy makers in strengthening the use of
Islamic microfinancing among SMEs. The CGC also must work with a
concerted effort with participating financial institutions to market these
schemes to other entrepreneurs, who may be looking f or alternative modes of
financing, which are Shari'ah compliant.